Uncle Sam has a new name on Wall Street  Sugar Daddy. Bonuses for investment bankers and traders are projected to fall 40% this year. But analysts, compensation consultants and recruiters say the drop would be much more severe, perhaps as much as 70%, were it not for the government's efforts to prop up financial firms. "Year-end pay on Wall Street will be higher than it would have been had it not been for the government and mergers," says Alan Johnson, a leading compensation consultant. "You would expect it to be down much more."

Johnson predicts that the average managing director at an investment bank, a title typically earned after eight years on the job, will receive a bonus of $625,000. That's down from nearly $1.1 million last year, but it is still 15 times the income of the average American household. Top bankers could receive as much as $1 million. Even a bond trader just out of business school could see his or her bank account enriched by as much as $170,000 this Christmas. "The firms have had an extremely difficult year," says Joan Zimmerman, a Wall Street career coach. "But they can't afford to lose talent either."

While the government rescue limits the salaries of five top executives from each of the participating financial firms, Congress did nothing to restrict Wall Street firms from using taxpayer funds to boost the compensation of rank-and-file investment bankers. "Some people might argue that these bankers should not be penalized if they weren't personally involved in the risky mortgage-backed securities," says Sarah Anderson, project director of the Global Economy Project at the Institute for Policy Studies, a progressive think tank in Washington. "My response is that the average taxpayer wasn't either, but she is being asked to take a hit."

Earlier this month, the government announced that it planned to quickly inject $125 billion of the $700 billion economic rescue package into nine of the nation's largest financial firms, including Wall Street titans Goldman Sachs and Morgan Stanley, as well as Bank of America, which recently acquired securities firm Merrill Lynch. That, along with other Treasury Department moves to rescue Wall Street, will mean the wallets of many investment bankers will be fatter than they would have been.

"It's not the government's money directly, but in the case of Morgan Stanley and Goldman Sachs, they were facing a severe crunch," says analyst Brad Hintz, who covers financial firms at Sanford Bernstein and is a former chief financial officer of Lehman Brothers. "Had it not been for the government's help in refinancing their debt, they may not have had the cash to pay bonuses." When asked, the Treasury would not comment directly on Wall Street's bonus plans, though spokeswoman Brookly McLaughlin did reiterate the bailout's intent. "There is broad agreement that the Treasury's capital purchase program was intended to strengthen the financial system and increase lending," she said.

One factor mitigating the financial industry's bonus intentions is the fact that there could be far fewer employed Wall Streeters by the time year-end payouts are made. Goldman Sachs reportedly plans to cut 10%, or 3,250 workers, from its payrolls. Barclays is expected to eliminate 3,000 jobs from the former investment-banking division of Lehman Brothers, which it acquired in September. And Merrill Lynch's John Thain recently said that he expects thousands of job cuts in the wake of his firm's acquisition. All told, Hintz expects Wall Street employment to fall 25%, which could mean a loss of 43,250 jobs in New York City alone and more than 200,000 jobs nationwide by the end of 2009.

Even with those cuts, Wall Street bonuses may still look inflated in light of the industry's dismal performance in 2008. For example, so far this year, Wall Street has underwritten $1.5 trillion in bonds. Sounds like a lot. But it is $500 billion less than what Wall Street did in debt back in the same time period in 2002, which was the last time Wall Street had a significant downturn. And that year Wall Street bonuses were just $8.6 billion, or $5.4 billion less than they are expected to be this year.

On the plus side, investor panic (which translates into hyperactive trading) and scrambling by executives to make deals have boosted Wall Street revenue. In the first half of the year, which is the latest available data from the Securities Industry and Financial Markets Association, the total fees that the investment banks and brokerage firms collected were nearly $166 billion. That's more than triple the $55.5 billion the firms had in revenue back in the first half of 2002. But the big difference is that in 2002, Wall Street was making money  nearly $8 billion in the first half of that year. This year financial firms are deeply in the red. They lost more than $15 billion in the first half of the year alone, and that was before the market's big plunge in the past few months. Says Frank Bruconi, chief economist in the New York City comptroller's office: "Had the federal government not stepped in with a bailout plan and other moves, the pay and the employment situation on Wall Street would be much worse."

That may make Wall Streeters  and some Manhattan restaurateurs  happy. But it will likely leave a sour taste with taxpayers for some time to come.